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H.R. 5515 (116th): Stop Taxing Our Potential Act of 2019


Should companies like Amazon only have to pay sales tax in the state where they’re headquartered, or potentially in all 50 states?

Context

The 1967 Supreme Court decision National Bellas Hess v. Illinois ruled that a state can’t charge tax on an out-of-state seller or business for goods or products shipped into the state. The 6–3 decision was relatively minor at the time, since most purchases were done in person or physically at a local store. With the internet, it has now become far more important.

As a result, online sellers — from giant online corporations like Amazon, to individual crafts makers selling their works on Etsy — have been largely exempt from state sales taxes. This put brick-and-mortar stores, which have always had to charge sales tax, at a substantial disadvantage.

But the Supreme Court reversed their decades-long precedent in 2018, ruling that states can indeed impose sales taxes on online sales originating outside their state. The 5–4 decision South Dakota v. Wayfair fell among surprising ideological lines: progressive Ruth Bader Ginsburg joined the three most conservative justices, while conservative John Roberts joined most of the court’s progressives.

In 2018, GovTrack Insider covered the Protecting Small Business from Burdensome Compliance Costs Act. While that wouldn’t have overturned the Supreme Court’s decision, it would have made it harder for states to implement. That bill never received a vote, and lead sponsor Rep. Bob Gibbs (R-OH7) reintroduced it for the current Congress in January 2019.

But some members are trying to go a step further.

What the legislation does

The Stop Taxing Our Potential (STOP) Act would overturn the Supreme Court’s Wayfair decision outright, and once again ban states from collecting sales taxes on anyone without a physical presence in the state.

The Senate version was introduced a month later on January 15, 2019 as bill number S. 128, by Sen. Jon Tester (D-MT). The House version was introduced almost a year later on December 19 as bill number H.R. 5515, by Rep. Ann Kuster (D-NH2).

What supporters say

Supporters argue the legislation would help small businesses, by eliminating the burdensome requirement of collecting sales tax from potentially thousands of different areas.

“New Hampshire businesses are ramping up for the holiday season to sell goods online all across the country. Unfortunately, the imposition of a burdensome online sales tax is hanging over their heads,” Rep. Kuster said in a December press release. “Requiring small businesses to collect an online sales tax from thousands of different tax jurisdictions will hurt growth in New Hampshire and increase red tape.”

“Montanans have spoken, time and time again, against a sales tax,” Sen. Tester said in a separate press release. “This bill cuts red tape and makes sure Montana’s small businesses won’t suffer because of sales taxes in other states.”

What opponents say

Opponents counter that the Supreme Court decision was needed to bring anachronistic tax laws into the digital era.

“Administrative costs of compliance, especially in the modern economy with its Internet technology, are largely unrelated to whether a company happens to have a physical presence in a state,” since-retired Justice Anthony Kennedy wrote in the court’s majority opinion.

“For example, a business with one salesperson in each State must collect sales taxes in every jurisdiction in which goods are delivered,” Kennedy wrote, “but a business with 500 salespersons in one central location and a website accessible in every State need not collect sales taxes on otherwise identical nationwide sales.”

“The physical presence rule is a poor proxy for the compliance costs faced by companies that do business in multiple States.”

Odds of passage

The House bill has attracted three Democratic cosponsors, and awaits a potential vote in the House Judiciary Committee.

The Senate bill has attracted four Democratic cosponsors, and awaits a potential vote in the Senate Finance Committee.

Although this particular bill is entirely Democratic, the policy issue itself doesn’t actually fall precisely along partisan lines. On the court, progressive Ginsburg joined the usual conservatives in support, while conservative Roberts joined the usual progressives in opposition. And the aforementioned bill to limit — rather than overturn — the decision was introduced by a Republican.

Still, because this legislation is so far only cosponsored by Democrats, its odds in the Republican-controlled Senate are unlikely.

Last updated Feb 12, 2020. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Dec 19, 2019.


Stop Taxing Our Potential Act of 2019

This bill prohibits a state from imposing on a person obligations related to collecting or paying a sales tax, use tax, or similar tax unless the person had a physical presence in the state during the calendar quarter with respect to which the obligation is imposed.

A person is physically present if the person's business activities in the state include

maintaining a commercial or legal domicile in the state; owning, holding, leasing, or maintaining certain property in the state; having one or more employees, agents, or independent contractors in the state who provide on-site design, installation, or repair services on behalf of the remote seller; having one or more employees, exclusive agents or exclusive independent contractors present in the state who engage in activities that substantially assist the person to establish or maintain a market in the state; or maintaining an office in the state at which three or more employees are regularly employed. The bill specifies certain activities and agreements that indicate a de minimis physical presence that is excluded from the definition of "physical presence."

The bill also specifies that U.S. district courts have original jurisdiction over civil actions to enforce this bill.